Question

Family Games, Inc., is a privately owned company with annual sales from a variety of wholesome electronic games that are designed for use by the entire family. The company sees itself as family-oriented and with a mission to serve the public. However, during the past two years, the company reported a net loss due to cost-cutting measures that were necessary to compete with overseas manufacturers and distributors.

Yeah, I know all of the details weren’t completed until January 2, 2019, but we agreed on the transaction on December 30, 2018. By my way of reasoning, it’s a continuation transaction and the $12 million revenue belongs in the results for 2018. What’s more, the goods were on the delivery truck on December 31, 2018 waiting to be shipped after the New Year.

This comment was made by Carl Land, the CFO of Family Games, to Helen Strom, the controller of Family Games, after Strom had expressed her concern that because the lawyers did not sign off on the transaction until January 2, 2019, because of the holiday, the revenue should not be recorded in 2018. Land felt that Strom was being hyper-technical. He had seen it before from Helen and didn’t like it. She needed to learn to be a team player.

“Listen, Helen, this comes from the top,” Land said. “The big boss said we need to have the $12 million recorded in the results for 2018.”

“I don’t get it,” Helen said to Land. “Why the pressure?”

“The boss wants to increase his performance bonus by increasing earnings in 2018. Apparently, he lost some money in Vegas over the Christmas weekend and left a sizable IOU at the casino,” Land responded.

Helen shook her head in disbelief. She didn’t like the idea of operating results being manipulated based on the personal needs of the CEO. She knew that the CEO had a gambling problem. This sort of thing had happened before. The difference this time was that it had the prospect of affecting the reported results, and she was being asked to do something that she knows is wrong.

“I can’t change the facts,” Helen said.

“All you have to do is backdate the sales invoice to December 30, when the final agreement was reached,” Land responded. “As I said before, just think of it as a revenue-continuation transaction that started in 2018 and, but for one minor technicality, should have been recorded in that year. Besides, you know we push the envelope around here.”

“You’re asking me to ‘cook the books,’ ” Helen said. “I won’t do it.”

“I hate to play hardball with you, Helen, but the boss authorized me to tell you he will stop reimbursing you in the future for child care costs so that your kid can have a live-in nanny 24-7 unless you go along on this issue. I promise, Helen, it will be a one-time request,” Land said.

Helen was surprised by the threat and dubious “one-time-event” explanation. She sat down and reflected on the fact that the reimbursement payments for her child care were $35,000, 35 percent of her annual salary. As a single working mother, Helen knew there was no other way that she could afford to pay for the full-time care needed by her autistic son.

Helen Strom is in an ethical dilemma due to a(n) ____________.

A) Adverse interest threat

B) Familiarity threat

C) Undue influence threat

D) Financial self-interest threat

Answer 1

Helen Storm is in ethical dilemma due to Financial self-interest Threat

Land want to increase the earnings by backdate the invoice to December 30. Helen is against the idea of manipulating the operating result based on the personal needs of CEO.  Helen is not willing to do a favour to Land. But he has to compromise with the Land for his child.Helen Storm is in ethical dilemma due to Financial self-interest threat.

Financial self -interest threat is the threat that a member will act in a manner that is adverse to the interests of his or her firm, employer, client or the public, as a result of the member or his or her close family member’s financial interest in or other relationship with a client or the employer.The threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behaviour.

Adverse interest threat :  The threat that a member will promote a client or employer’s position to the point that his or her objectivity is compromised.

Familiarity threat : The threat that because of a long or close relationship with a client or employer, a member will become too sympathetic to their interests or too accepting of their work.

Undue influence threat : The threat that a member will subordinate his or her judgment to that of an individual associated with a client, employer or other relevant third party because of the individual’s (1) reputation or expertise, (2) aggressive or dominant personality, or (3) attempts to coerce or exercise excessive influence over the member.